Income Tax Appellate Tribunal - Chandigarh
Dcit, Chandigarh vs Sh. Gurinder Pal Singh, Chandigarh on 15 June, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH 'A', CHANDIGARH BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA No.235/Chd/2017 (Assessment Year : 2008-09) Mr.Gurinder Pal Singh, Vs. The Addl. CIT, H.No.66, Sector 27-A, Range - 5, Chandigarh. Sector 17, Chandigarh.
PAN: ACNPS7888M
&
ITA No.294/Chd/2017
(Assessment Year : 2008-09)
The D.C.I.T., Vs. Mr.Gurinder Pal Singh,
Circle 1(1), H.No.66, Sector 27-A,
Sector 17, Chandigarh. Chandigarh.
PAN: ACNPS7888M
(Appellant) (Respondent)
Appellant by : Shri Atul Mandhar, Adv.
Respondent by : Smt.Chanderkanta, Addl.CI T
Date of hearing : 20.03.2018
Date of Pronouncement : 15.06.2018
O RDE R
PER ANNA PURNA GUPTA, A. M. :
The above cross appeals, by the assessee and the Revenue, have been filed against the order of learned Commissioner of Income Tax (Appeals)-2, Chandigarh dated 29.11.2016 relating to assessment year 2008-09.
2. A t t h e o u t se t i t m a y b e s t a te d th a t t h i s i s t h e se c o n d r o u n d o f h e a r i ng b e f o r e t h e I . T. A . T. B r i e f f ac t s r e l a t i n g t o t h e c a s e a re t h a t t h e a s s e s se e i s a r o a d b u i l d i n g c o n t r a c t or b e i n g P r op r i e t or o f M / s R a j i n d e r & C o m p a n y.
2
3. I ni t i a l l y , a s s e ss m e n t u / s 1 4 3 ( 3 ) o f t h e I n c o me Ta x A c t , 1 9 6 1 ( i n sh o r t ' t he A c t ') w a s m a d e o n t he a s s e s se e , vide o rd e r da te d 1 5 . 1 2. 2 0 1 0 , wherein due to various d i s c r e p a nc i e s n ot e d b y t h e A s s e ss i n g O f f i c e r i n t he b o o k s o f a c c o u n t m a i n t a i n e d b y t h e a s s ess e e , t h e b o o ks of a c c o u n t s w e r e r e je c t e d u/ s 1 4 5 ( 3) o f th e A c t a n d t h e r eaf t e r a ne t p r o f i t ra t e of 1 2% w a s a pp l i e d to t h e g ro s s re c ei p t s o f t h e a s s e s s e e a s r e duc e d b y t h e c o s t o f m a t e r i a l s up pl i e d b y t h e D e p a r t m e nt a nd sales ta x deducted at so u r c e , f or d e t e r m i n i n g t he i n c o m e ea r n e d by t h e a ss e s s e e du r i n g t he y e a r f r o m t h e s ai d b u s i n es s . Th e L d . CI T( A p p e a l s) r e d u c e d t h e n e t p r o fi t r at e a p p l i e d to 7 %, n o t i n g t h at t he f a c t s o f t h e i m p u g n e d ye a r w e r e i d e n t i ca l t o t h e p r e c ed i n g y e a r s w h e r e i n t h e r a t e o f 7 % h a d b e e n a c c e p t e d i n a p p ea l e v e n b y t h e I . T. A . T. Th e m a t t e r w e n t u p i n a p p e a l b e f o r e th e I . T. A . T. w h o f o u n d t h a t t h e f a ct s o f th e p r e s e nt y e a r w e r e n ot i d e n t i c a l wi t h th e p r e c e d i n g y ea r s o n a c c o u n t o f t h e f a c t t h a t a s u rv e y w a s c o n d u ct e d a t t h e a s se s s e e 's p r e m i s es during w h i ch th e details of wa g e s taken o ut from the c o m p u t e r s ho w ed w i d e d i s c re p an c y i n t h e w a ges a c t u a l l y p a i d b y t h e as s es s e e a s a g a i n s t th a t s h o w n i n t he b o o k s o f a c c o u n t s . Th e I . T. A . T. f u r t h e r no t e d t h at t h e Tri b u n a l h ad i n A . Y . 2 00 7 - 0 8 h e l d t h a t i t s o rde r w o u l d n o t o pe r a t e a s a precedent if s uf f i c i e n t m a t e ri a l was b r o ug h t on record w a r r a n t i ng a d o pt i o n o f a h i g h e r p e r c e n t a g e o f n e t p r o f i t . C o n s i d e r i n g t h e s a m e , t he r e f o r e, t h e I TA T, i n t h e i m p u g n e d 3 year, r e st o r e d the issue to th e CI T( A p p e a l s ) with t he d i r e c t i o n t o r e - e x a m i n e t h e i s s ue i n t h e l i g h t o f t h e f a c ts r e c o r d e d by t h e A s s e s s i n g O f f i c er . Th e I TA T h a d a l s o d e a l t w i t h t h e i s s ue ra i s e d b y t h e a s se s s e e o f c l a i m i ng d e d u c ti o n of work s u b c on t r a c t e d from the g r o ss r e c ei p t s while a p p l y i n g 7 % n e t p r o f i t r at e a n d l a i d d o w n t h e p ri n c i p l e t ha t w h e n t h e w or k wa s s u b c o n tr a c t e d a s i t i s b y t h e as s e s s e e a t t h e s a m e r at e at w h i c h i t wa s t a k e n , t h en t h e q u a n t u m s u b c o n t r ac t e d work could be reduced from the gross r e c e i p t s f o r t h e p u r p o s e of c a l c ul a t i n g th e n e t p ro f i t e a rn e d during the y e ar , o t h e r w i se it was held that the work s u b c o n t r ac t e d on l y t a n ta m o u n ted t o a n e x p e nd i tu r e o f t h e a s s e s s e e w h i ch w o u l d e v e n o t h er w i s e b e c o v e r e d i n t h e n e t profit rate applied on the total turnover of the assessee. After l a y i ng down the a f o r e s ai d principle t he I . T. A . T. r e s t o r e d th i s i s su e a l s o t o t he CI T( A p p e a l s ) t o d e te r m i n e t h e facts of t he c as e a n d t h e re a f te r decide th e issue a ft er a p p l y i n g t h e p ri nc i p l e l ai d d o w n by t h e I . T. A . T.
4. Th e C I T( A p p e a l s ) t h e re a f t e r in p u r s u an c e of t he a f o r e s a i d d i re c t i o n s o f t h e I . T.A . T. a d j u d i c a t e d b o t h t h e i s s u e s a n d he l d t h a t t he n e t p r o fi t r a t e o f 1 0 % b e a p p l i ed to the gross r e c ei p t s of th e a s se s s e e as r e d u ce d by t he m a t e r i a l su p p l i ed b y t h e D e p art m e n t a n d t he s a l e s t a x d e d u c t e d a t s o ur c e a n d b i t u m e n p u r c h a s e s m a de f r o m t h e G o v e r n m e nt a g en c y a n d f u r th e r h e l d t h a t n o ded u c t i o n o n account of t he work su b c o n tra c t e d by the as s e s s e e be 4 allowed f r om the same. Th e relevant f i n di n g s of the C I T( A p p e al s ) a t pa r a s 5 a nd 5 . 1 ar e a s u n de r :
"5. Submissions of the appellant, findings/directions of Hon'ble ITAT, assessment order and the relevant facts in this regard have been carefully considered. The assessee is doing business as contractor for construction of roads and in the absence of books of accounts the net profit of the assessee has been assessed and accepted at 7% of the contract receipts. This pattern is being followed from assessment year 2003-04 to 2007-08 and in AY 2005-06 and 2006-07 net profits at 7% of the contract receipts was directed to be assessed by Hon'ble ITAT and was confirmed by Hon'ble Punjab & Haryana High court. In AY 2007-08 Hon'ble ITAT, Chandigarh Bench directed to recompute the net profit of the assessee by applying net profit rate of 7% instead of 12% and this direction of taking net profit rate at 7% was in the normal circumstances in the relevant year. Hon'ble ITAT also observed in its order that this order will not operate as precedent if the assessing officer is in a position to bring sufficient material on record warranting hire percentage of net profit or higher amount of disallowance of expenses. A survey was conducted on the business premises of the assessee on 12.03.2009, during which a computer printout was taken from the computer of the assessee at its business premises for relevant assessment year in which the wages expenses have been shown at Rs. 2,05,60,856/- as against the wages of Rs. 9,06,13,880/- debited in P&L account and the return of income stood filed on 30.09.2008 i.e. before the date of survey. Thus there was discrepancy in the wages in the accounts of the assessee which were claimed to be audited. Appellant has not produced complete books of accounts before the assessing officer during course of assessment proceedings. The discrepancy in wages and no books of accounts clearly distinguish the relevant assessment year from the earlier assessment years including assessment year 2007-08 wherein net profit rate of 7% was directed to be applied in the normal circumstances of a road contractor. In the relevant A.Y. the assessing officer has applied the net profit rate of 12% relying on the decision of Hon'ble Punjab & Haryana high court in the case of M/s Prabhat Kumar (supra). The case relied upon by assessing officer is of a civil contractor and the appellant being a road contractor and in the business of road contractor the profit margins are lower than that in the business of civil contractor and this ratio has been recognized by the IT AT Chandigarh Bench in its order dated 24.02.2010 in the case of M/s M.K. Constructions (ITA No. 11/Chd/2011) wherein net profits of the assessee were directed to be assessed at 8%. Also in the case of another road contractor i.e Sh. Jaswant Singh, Contractor, Hon'ble IT AT, directed in ITA No. 1109/Chd/2011 to take net profits of a road contractor after rejection of books of accounts at 6% considering the fact in normal circumstances. The net profit rate at 7% has been 5 directed to be applied by ITAT Chandigarh Bench in AY 2007- 08 and preceding assessment years in normal circumstances in the case of the assessee. The relevant year being a case where discrepancies in wages were found and appellant has not produced books of accounts to explain the same, therefore the net profit is directed to be taken at 10% of the gross receipts as defined in succeeding paragraph. 5.1 Appellant has claimed that the sub contract work of Rs.2,37,71,741/- be allowed to be deducted from the gross receipts. Hon'ble ITAT has given specific directions that the sub-contract work is an expenditure of the assessee and the same cannot be reduced from the turn over as appellant has filed no evidence to show that the sub-contract work was given on the same rates as received by the assessee. Assessing Officer in the absence of books of accounts made an addition of profit margin of 6% estimated to be applied to the value of subcontract work and made addition of Rs..14,26,304/- which was deleted by CIT(A) and the decision was upheld by Hon'ble ITAT, Therefore it is held that the subcontract work will not be allowed to be deducted from gross receipts for applying net profit rates as it is in the nature of expenditure and appellant has not brought any evidence on record to prove that the subcontract work was given on the same rates as received by the assessee. For applying net profit rate I have considered that Hon'ble Tribunal in assessment years 2005-06 and 2006-07 confirmed the net profit rate of 7 % of gross receipts as reduced by material supplied by government and purchases made from government agencies. This principle was confirmed by Hon'ble P&H high court in these assessment years and as per the copy of the order filed by the appellant for assessment year 2011-12 it has been followed by assessing officer in AY 2011- 12 wherein net profit rate of 7%*has been applied after making deductions on account of material recovered from government and material purchased from government agencies. Similar principle of allowing deduction of material supplied from govt. and purchases made form government agencies was upheld by Hon'ble ITAT in case sister concern of the assessee M/s Grafcon Infrastructure in AY 2008-09 in its order dated 13.07.2012 (ITA No 848/Chd/2011) on identical facts. In view of the above discussion and respectfully following the decisions of Hon'ble ITAT mentioned above AO is directed to assess the net profit at the rate of 10% of the gross receipts as per TDS certificates less material supplied by department, sales tax deducted at source and bitumen purchases made from govt. agencies after due verification.; The net profit determined at 10% of the total receipts determined as above will be as if all the expenses including depreciation have been allowed and no further expenses will be allowable from the net profit so determined. The issues set aside and discussed in para 3 & 4 above are partly allowed."
6
5. A g g r i e v e d b y t h i s o r d e r o f t h e CI T( A p p e a l s ) , b o th t h e a s s e s s e e a n d t h e R e v e n u e h a v e c o m e u p i n a p p e a l b e f o r e us w i t h t he a s se s s ee c h a l l e n g i n g t h e a p p l i ca t i o n o f 10 % r a t e of n e t p r o f i t as a g ai n s t 7 % c l a i m e d b y i t a n d a l s o ch a l l e n g i ng t h e a c t o f th e CI T( A p p e a l s ) i n n ot g r a n t i n g t h e d ed u c t i o n o f p a y m e n t ma d e to s u b - c o nt r a c t ors f r o m t he g r o ss r e c e i p ts w h i l e a p pl y i n g pr o f i t r a te . G r oun d r a i s e d b y t he a s s e s s ee r e a d a s un d e r :
"1. That the Order of the Lrd. Commissioner of Income Tax [Appeals] - 2, Chandigarh is partly defective both in law and facts of the case.
2. That the Lrd. Commissioner of Income Tax [Appeals] - 2, Chandigarh has been unjustified in applying Profit Rate @ 10% as against Profit Rate of 7% of Gross Receipts as further reduced by various deductions as held by Hon'ble Punjab & Haryana High Court in Assessee's own case for Preceeding Years.
3. That the Lrd. Commissioner of Income Tax [Appeals] - 2, Chandigarh has been unjustified in not deducting payment made to Sub-Contractors from Gross Receipts while applying Profit Rate.
4. That any other ground which may be taken up at the time of hearing of the Appeal with the kind permission."
6. Th e R e v e n u e , o n t h e o t h e r h a nd , h a s c h a l l e n ged t h e a p p l i c a t i o n o f n et p r o f i t r a t e of 10 % a s a g ai n s t 12% c h a r g e d b y t h e As s e s s i n g O f f i c e r a n d h a s r a i s e d fo l l o w i n g g r o u n d s o f appeal:
"1. On the facts & in the circumstances of the case and in law, the Ld.CIT(A)has erred in allowing appeal of the assessee without appreciating the facts of the case.
2. The Ld. CIT(A) have erred in restricting the net profit from 12% to 10% without appreciating that the net profit was applied as per the documents impounded during the course of survey wherein specific discrepancies were noticed?7
3. It is prayed that the order of the Ld.CIT(A) be cancelled and that of the assessing officer may be restored.
4. The appellant craves leave to add or amend any grounds of appeal before the appeal is heard or is disposed off."
7. Since t he i s s ues i n v o l ve d in bo t h the appeals are c o m m o n a n d i n te r l i n k e d , w e s h al l b e d e a l i n g w i th b o t h t h e a p p e a l s to g e t h er .
8. D u r i n g t h e c o ur se o f h e a r i n g b e for e u s , o n t h e i s su e o f net profit rate to be a p p l i e d, the L d . C o u n se l for the assessee laid e m p h a s i s o n t h e f a c t t h a t i n a l l p r e c e di n g y e a r s n e t p r o fi t r a t e o f 7 % h ad c o n s i s te n t l y b ee n a p p l i e d w h i c h h a d be e n a f f i r m e d a s a p p ro p r i a t e b y t h e I TA T a n d t h e Hon'ble High Co u r t also. Ld .C o u n s e l f or the assessee p o i n t e d o u t t h at c o n t e n d e d t h at i n t h e a s s e ssm e n t y e a r s 2 0 0 5 - 0 6 a n d 2 00 6 - 0 7 the I TA T h a d i n t h e c a s e o f t he assessee i t s el f held a net profit rate of 7% to be a p p r o p r i at e w h i ch h a d b e e n a f f i rm e d b y t h e H o n 'b l e P u n j a b & Haryana H i gh Court also vi d e its order da t e d 13th S e p t e m b e r 2 0 1 1. C o p y o f t h e or d e r s o f th e I TA T a n d t h e H o n ' b l e H i g h C ou r t w e r e p l ac e d b e f o r e u s . Th e L d . C o u n s el f u r t h e r c o nt e n d ed t h a t e v e n i n ea r l i e r y e ar s f r o m A . Y 2 0 0 1 - 0 2 t o A . Y 2 0 0 4 -0 5 , n e t p ro f i t ra te o f 7 % h ad b e en a p p l i e d. Th e Ld. c o u n sel for a s s e s s ee further relied upon th e d e c i s i o n o f t h e I TA T C h a n d i g a r h B e n c h i n t h e ca s e o f M / s M . K . C o n s t ru c t i on s V s . A CI T i n I TA N o . 1 1 / C h d / 20 1 1 d a t e d 24.2.2010 a nd Jaswant S i ng h C o n t r a c to r in I TA N o . 1 1 0 9 / Ch d / 2 01 1 d a t e d 2 9 . 2. 20 1 2 i n s u p p o rt o f i t s p l ea t h a t t h e n e t p rof i t r a t e o f 7 % be a p p l i e d . Th e Ld . c o u n s e l 8 f o r a s se s s e e p o i n t e d o ut t ha t th e a s s es s e e s i n b o t h t he c a s e s w e r e ro a d c o n t r a c t or s t o wh i c h a n e t p r of i t r a t e o f 8 % and 6% r e s pe c ti v e l y was up h e l d by the I . T. A . T. to be a p p r o p r i at e f o r d e t e r m i n i n g t h e i n c o m e e a r n e d f r o m t h e said b u si n e s s . Th u s the Ld . c o u n se l f or a s s e s s ee , c o n t e n d e d t h a t 7% n e t p r o fi t r a te o u g h t t o be a p pl i e d t o t he t u r n o v e r o f t h e a s s e s s e e a s a ga i n s t 1 0 % a p p l i e d b y t he C I T( A p p e al s ) . Th e L d . C o un s e l for the a s s e s s ee f u r t h er contended t ha t the abnormality taken note of by the C I T( A p p e al s ) b e i n g t h e i n f o r m at i o n o b t a i n e d d uri n g s u r v e y r e l a t i n g t o w ag es a c t u a l l y p a i d b y t h e a ss e s s e e, w a s n o t a d i s t i n g u i s h i n g fac t o r a t a l l t o a t tr a c t l e v y o f 1 0 % n e t p r o f i t r a t e i n t h e i m p ug n e d y e ar a s d on e b y t h e CI T( A pp e a l s ) . Th e L d . c o u ns e l fo r a s s e s s e e s t a t ed t h a t f i rs t l y t h e s u r v e y wa s c o n d u c t e d o n 1 2. 3 . 2 0 0 9 , w h i ch w a s r e l ev a n t fo r A . Y . 2 0 0 9- 1 0 a n d no t t he i m p u g n ed y e a r i . e . A. Y . 2 00 8 -0 9 . I n a n y c a s e , t h e L d . c ou n s e l f o r a s s e s se e s t a t e d t h a t ev e n i f t h e s a m e i s t a k e n to p e r t a i n t o t h e i m p u g n e d y e a r , t h e s a m e w o u l d n ot m a ke a n y d i f f e r e nc e to t h e de t e r m i n a ti o n o f t h e n e t p r o f i t r a te t o b e l e v i e d o n th e g r o s s r e c e i p ts s i n c e i n a n y c a s e , t h e bo o k s o f a c c o u nt o f t h e a s s e s s e e h a d b e e n r e j e c t e d a n d th e n e t p r o fi t ha d to b e e s ti m a t e d on t h e b as i s o f t h e p a s t h i s to r y o f t h e a s s e ss e e . Th e r e f o r e , th e a c t u a l i n c u r r e n ce o f a ny e x p e n di t u r e wo u l d m a ke n o d i f f e r e n c e t o t h e a p p l i ca b l e ne t p r o f i t ra t e a t a l l . Th e L d . c ou n s e l f or a s s e s s e e , th e r e fo r e , s t a t e d th a t t h e n e t p r o f i t ra t e o f 1 0 % a p p l i e d by t h e C I T( A p p e al s ) d i st i n g u i s h i n g t h e i m p u g n e d year's case f rom the p r e c e d i ng years on the basis of 9 documents r e l at i n g to w a g es unearthed dur i n g survey p r o c e e d i ng s , w as n o t s u s t a i n a bl e . Th e L d . c o u n s e l f o r a s s e s s e e f u rt h e r p l e a d e d t h a t 1 2% n e t p r o f i t r a t e a p p l i e d by t h e A s s e s si n g Of f i c e r a nd c a n v as s e d b y t he R e ve n u e h ad r i g h t l y b ee n h e l d n o t a p p l i ca b l e i n t h e p r e s e nt c a s e b y t he C I T( A p p e al s ) h av i n g c o r r e c tl y n o t e d t h a t t h e ba s i s o f t h e 1 2 % r a t e b e i n g t h e d e c i s i o n o f t h e H o n ' b l e J u r i s d i c t i o n al H i g h C o u r t i n t he c a s e o f P r a b hat K u m a r i n I TA N o . 2 9 3 o f 2 0 0 8 a nd M /s Sh i v a m Co n s t r uc ti o n i n I TA N o . 167 o f 2 0 0 7 , b o t h o f t h e m w e re e n g a g e d i n t h e w o r k o f c i v i l c on s t r u c t i on w h i l e t h e a s s ess e e w a s a r o a d c o n t r a c t o r w her e t h e n e t p r o f i t m ar g i n wa s l o w e r a s c o mp a r e d t o a c i v i l c o n t r a c tor a n d , t h e r e f or e , t h e s a i d r a t e s w e r e n o t a p p l i ca b l e t o t h e p r e s e n t ca s e .
9. O n t h e i s s u e o f r e d u c t i o n o f w o r k s u b c o n t r a c t ed b y t h e a s s e s s e e f r om t he g r o s s r e c e i pt s f o r a p p l y i n g n et p r o f i t r a t e t h e a s s e s s ee c on t e n d e d t h at i n t h e p a s t a l s o t he a s s e s s ee had been allowed d e d u c ti o n on account of work s u b c o n t r ac t e d in assessments made u/s 143(3) for a s s e s s m e nt y e a rs 2 0 0 3 - 0 4 , 2 0 0 4- 0 5 a n d 2 0 1 1 - 1 2. Th e L d . c o u n s e l f o r a s s es s e e f u r t h er p o i n t e d o u t t h at ev e n i n t h e case of s i s te r concern of th e assessee M/ s Grafcon I nf r a s t r uc t u r e i n I TA N o . 8 4 8 / Ch d / 2 0 1 1 d a t e d 1 3 . 7 . 2 0 1 2 d e d u c t i o n on a cc o u n t o f s u b co n tr a c t w a s d u l y a l l o w e d . Th e L d . c o u n s el f o r a s s e s s e e al s o r el i e d u p o n th e o rd e r o f t he H o n ' b l e J u ri s d i ct i o n a l H i g h Co ur t i n t h e c a s e o f C I T V s . P r a n N a t h G u pt a, 3 2 8 I TR 1 6 5 i n s u p p o r t o f i ts c o n t e n t i on 10 t h a t d e d u ct i o n o f p a y m e n t t o s u b c o n t r ac t o r s b e a l l o w e d f r o m t h e g r o s s r ec e i p t s f or l e v y i n g n e t p r o fi t r at e .
10. Th e L d . D R , o n t h e o t h e r h a n d , r e l i e d u p o n t h e o r d e r o f t h e As s e s s i ng O f f i c e r i n s up po r t o f i t s c o nt en t i o n t h at 1 2 % n e t p r o f i t r a t e b e a p p l i e d, w h i l e h e r e l i e d u p o n t h e o r d e r o f t h e CI T( A p p e a l s ) i n s u p po r t o f h i s c o n t en t i o n t h a t payment on a cc o u n t of s u b - co n t r a c t s h ou l d not be d e d u c t e d f r o m th e g r o ss r ec e i p ts f o r a p p l yi n g n e t p r of i t rate.
11. W e h a v e h e a r d t h e c o n t e n ti o n s o f b o t h t h e p ar t i e s, p e r u s e d t he o r de r s o f t h e au t h or i t i e s b el o w a n d a l s o g o ne t h r o u g h v ar i o u s d o c u m e n t s a n d o r d e r s r e fe r r e d t o b e f o r e u s . Th e r e a r e p r i m a r i l y t w o i s s u es b e f o r e u s . Th e f i r s t i s s ue p e r t a i n s t o de t e rm i n a t i o n o f ne t p r o f i t r a te t o b e a p p l i e d o n t h e r e c ei p t s of t h e a s s es s e e fo r d e t e r m i n i n g the t a x a b l e i n c o m e . Th e s e co n d i s s u e i s w he t h e r d e d uc t i o n o n a c c o u n t o f w o r k s u b c o n t r a c t e d b y t h e a s s e s s e e i s t o b e a l l o w ed f r o m t h e g ro s s r e c e i p t s fo r a p pl i c a t i o n of n e t p r o f i t r a te thereon.
12. Th e f a c t s w h i c h a r e n o t d i s p u t e d a r e t h a t t h e a s s e s s e e i s a c o n t r ac t o r i n t h e b u s i ne s s of r o a d c o n st r u c t i o n a n d t he b o o k s o f ac c o u nt s m a i n t ai n e d by t h e a s s es s e e h a v e b e en rejected u/s 14 5 ( 3 ) of the Ac t , which has remained u n c h a l l e ng e d . Fu r t h e r u n d i s p u te d l y i n t h e p a st n e t p r o f i t r a t e o f 7 % h a s be e n h e l d t o b e ap p r o p r i a te f or de t e r m i n i ng t h e i n co m e of t he a s s e ss e e . I t i s a f a c t o n r e c o rd t h a t in a s s e s s m e nt y e ars 2 0 0 5 - 06 a n d 2 0 0 6 - 0 7 , n e t p rof i t r a t e o f 11 7 % h a d b e e n h el d a p p r o p r i a t e b y t h e I . T. A . T. a n d t h e s a m e w a s c o n f i r m ed b y t h e H o n ' b l e H i g h C o u r t . I n t h e i m p u g n ed year the CI T( A p p e a l s ) held 10% net profit rate as a p p r o p r i at e , a s d i s t i n g u i s h e d f rom t h e e a r l i e r y e ar s , f o r t he r e a s o n t h a t t he a s u r v e y w a s c on d u c t e d a t t h e pr e m i s e s of t h e a s s e s s e e w he r e i n t h e c o m p ut e r p r i n t o u t o f w a g e s w as f o u n d r e ve a l i n g t h a t t h e as s e s s ee w a s a c t ua l l y p a y i n g f ar l e s s w ag e s t h a n t h a t s h o w n i n t h e b o ok s o f a c co u n t . Th i s t h e L d . CI T( A ) h el d m a d e t h e i m pu g n e d y e a r ' s c ase d i f f e r e n t and d i s t i ng u i sh a b l e from t he p r e c e d i ng ye a r s and, t h e r e f o r e, t h e pa s t h i s t or y o f ap p l y i n g 7% n e t p r o f i t r ate was held not applicable in the impugned year. Th e L d . CI T( A p p e a l s ) a l s o r e j e c t ed 1 2% n e t p r o f i t r a t e a p p l i e d b y the A s se s s i n g Officer, w h i ch the A s se s s i n g Officer had a p p l i e d f o l l o w i n g t h e d e c i s i o n o f t h e H o n ' b l e J ur i s d i c t i o n al H i g h C o u r t i n t he c a s e o f P r a bh at K u m a r c o n t ra ct o r ( s u p r a) a n d S h i v a m C ons t r u c t i o ns ( s u p ra ) , s t a t i n g th a t t h e y w e r e c i v i l c o nt r a c t or s w h o s e w or k p r of i l e w a s d i f f er e n t f r o m t h at o f t h e a s se s s e e w h o w a s a r o a d co n s t r u c t i o n c o n tr a c t o r a nd, t h e r e f o r e, n e t p ro f i t r a t e a p pl i c ab l e i n t h o s e c a ses c o u l d n o t b e a p p l i e d i n t he p r e s e n t c as e . Th e C I T( A p p e a l s ) , t h e r e f o re , c o n s i d e r ed 1 0 % n e t p r o f i t r a te a s a p p r o p r i a t e .
13. W e a r e n o t i n a g r e e m e n t w i t h t h e L d . CI T( A p pe a l s ) . C o n s i d e r i n g t h e p a s t h i s to r y o f th e a s s e s s ee w h e re i n 7 % n e t p r o f i t r a t e w as h e l d a p p r o p r i at e , t h e s a m e un d o u b t e d l y c o u l d h av e b een d i g r e ss e d fr om o n l y i f th e fa c t s a n d 12 c i r c u m s t an c e s i n t h e i m p u g n e d ye a r d e m o n s t r at ed t h a t t h e a s s e s s e e h a d ea r n e d m o r e t h an t h e n o r m a l a p p r o p r i a te p r o f i t s . Th i s e x a c t l y w as t h e o b s e r v a t i o n o f th e I . T. A . T. a l s o w h e n i t r em a n d e d t h e i s s ue t o t h e CI T( A p pe a l s ) t o r e- e x a m i n e i n t h e l i g h t o f t he e v i de nc e c o l l e ct e d d ur in g s u r v e y, b e i n g a w a g e s he e t s h o w i n g w a ge s p a i d d u r i n g th e y e a r at R s . 2 , 0 5 , 60 , 8 5 6 /- a s a g a i n s t R s .9 , 0 6 , 1 3 , 38 0 / - c l a i m e d b y t h e a s s e ss e e i n i t s b o o k s o f a c cou n t . W e f i n d t hat t h e s ai d d o c u m e n t h a s n o e f f e c t / i m p ac t o n t h e a p p r o p r i a t e n e t p r o f i t r a t e t o b e a p p l i ed i n t h e c a s e o f t h e a s s e s s e e . Th e b o o k s o f a c c o u n t s o f th e a s s e s s e e i n a ny c a s e , w e f i n d, h a v e b e e n rejected me a n i ng thereby th a t it has b e en co n c l u s i v el y f o u n d t h a t t h e en t r i e s i n t h e b o ok s o f a c c o u n t d o n o t r e f l e c t the actual p o si t i o n of the a s se s s e e r e l a ti n g to income e a r n e d d u r i n g th e y e a r . A n d t he r e a f t e r a n a p p ro p r i a t e n e t p r o f i t ra t e a pp l i e d t o d et e r m i ne t h e i n co m e e arn e d b y th e a s s e s s e e . O n a pp l i c a t i o n o f a ne t p r o f i t r a te a l l e x p e n se s i n c u r r e d a re a s su m e d t o h a v e be e n d u l y t a k en c a r e o f . I n this s c e na r i o , an y fact re l a t i ng to the ac t u a l expenses i n c u r r e d b y th e a s s e s s e e h a s n o i m p a c t o n th e ap p r o p r i a te n e t p r o f i t r at e to b e a p p l i e d , si n c e t h e s a m e i s the profit which the as s es s e e n o r m al l y earns from the types of b u s i n e s s a c t i vi t y i t i n du l g e s i n. Th e s a m e i s d e t e r m i n ed c o n s i d e r i n g t h e n a t u r e o f b u s i ne s s i n w h i c h t he a s s e s s e e i n d u l g e s a n d t he n o r m a l p r o f i t s h o w n i n t h e s am e l i n e o f b u s i n e s s . O n c e th e n e t p ro f i t r a t e i s a p p l i e d a l l e xp e n d i t u r e 13 a r e a s s u m e d t o h a v e b e e n a c c o un t e d f o r a n d , t he r e f o r e , t h e a c t u a l e xp e n d i tur e i n c u r re d w i l l n o t i m pa c t t he n e t p r of i t r a t e a p p l i c a b l e . Th e a p p l i c a b l e n e t p r o f i t ra t e c a n d i f f e r o n l y w he n th e fac t s d e mo n s t r at e t h a t t he n at u r e of t h e w o r k carried out by the a ss e s s e e during th e i mpu g n e d y ea r d i f f e r e d f r om t he p r e c e d i n g y e ars a n d i n w h i c h t h e p r o f i t m a r g i n t h e as s es s e e w a s e a rn i ng w a s a l s o d i ff er e n t . Th a t b e i n g n o t t h e ca s e i n t h e p r e se n t a p p e a l b e for e u s , t h e C I T( A p p e al s ) we hold had e r r ed in taking n ot e of the d o c u m e n t s f ou nd d u r i n g s e a r c h r e l a t i n g t o w a ge s p a i d b y t h e a s se s s e e a n d h o l d i ng t ha t the f a c t s o f t h e p re s e n t ye a r d i f f e r e d f r o m t he p r e c ed i n g y e a rs a n d , t h e r ef o r e, t h e p a st a c c e p t e d h i st o r y o f t h e a s s e s s e e of n e t p r o f i t r a t e o f 7 % w a s n o t a p p l i ca b l e . S i n c e w e f i n d t ha t t h e f a c t s i t u at i o n i n t h e present ca s e re m a i n s u nc h a ng e d for th e pu r p o s e of d e t e r m i n at i o n o f t h e n e t p r o f i t ap p l i c a b l e t o th e t u r n o v e r of t h e a s s es s e e , d es p i t e t he d o cu m en t s r e l at i n g t o wa g e s f o un d d u r i n g s u rv e y , w e s e e n o r e aso n t o d i f f er f r om t h e p a s t h i s t o r y o f th e a ss e s s e e an d , th e re f o r e , w e s et a s i d e t h e a ct o f t h e CI T( A p p eal s ) i n a pp l y i n g th e n e t p ro f i t ra te o f 1 0 % t o t h e g r o ss t u r no ve r o f th e a s se s s ee a n d re s t r i ct t he s a m e t o 7 % a s d o n e i n th e p a s t. F o r t h e s a m e r ea s o n , w e a r e no t i n a g r e e m e n t w i t h t h e c o n t en t i o n of t h e R e ve n u e t ha t t h e n et p r o f i t r at e o f 1 2% b e a p p l i ed t o t h e g r o s s tu r n ov e r o f t h e a s s e s s e e . A c c o rdi n g l y , gr o u n d of a p p e a l N o. 2 r ai se d b y t he 14 a s s e s s e e i s a l l o w e d , w hi l e g r o un d o f a p p e al No . 2 o f t he R e v e n u e i s d i s mi s s e d .
14. C o m i n g to g r o u nd N o . 3 ra i s e d by t h e a s s es s e e re l a t i n g t o d e d u c t i o n o f pa y m e n t m a de t o s u b - c o n t ra c t o r s f r o m g r o s s r e c e i p t s , w e f i n d t h a t t h e I . T. A . T. h a d r e s t o r e d th e i s s u e t o t h e CI T( A p p e a l s ) a f t e r l a y i n g d o w n t h e p r i n c i p l e t h a t t h e p a y m e n t t o su b- c o n t r a c to r s a r e t o b e r e d u c ed f r o m t h e g r o s s re c e i p ts on l y i f t h e w o r k i s s u b - co n t r a c te d a s i t i s t o the s u b -c o n t r a ct o r s w i th o u t an y profit m a r gi n b e i ng r e t a i n e d b y t h e c o n t r a c to r s a nd t h e l i mi t e d pu r p o s e f or w h i c h t h e i s s u e w a s r e s t or e d to t h e CI T( A p p e al s ) w a s t o d e t e r m i n e w h et he r t h e f a c t i n t h e p r e s e n t c a s e wa s s o a n d a l l o w d e d u ct i o n o f t h e w o r k s ub co n t r a c t e d on l y i n t h e s a i d f a c t s i t u at i o n . Th e CI T( A p p e a l s ) h a v i n g n o t f o u nd t h e s a i d f a c t s i t u a t i on , d e n i e d de d u c t i on o f th e p a y m en t m a d e t o s u b - c o n t ra c t o r s. Even before us L d . C o u n s el for the a s s e s s e e h a s n ot b e e n a b l e t o d em o n s t r a t e t he s ai d f a c t . W e t h e r e f o r e f i n d no r e a s o n t o i n te r f e r e i n t h e o rd e r o f t h e C I T( A p p e al s ) c on s i d e r i n g the sp e c i f i c di r e c t i o ns of t he I . T. A . T. Th e a r gu m e n t s r a i s e d b y t h e L d . C ou ns e l f o r t h e a s s e s s e e t h a t i n e a r l i e r ye a r s i t ha d b e e n al l o w e d d e d u c t i o n o f w o r k s u b - c o ntr a c t e d i r r es p e c t i v e o f t h e m a n n er i n w h i c h i t w a s s u b -c o n t ra c t e d i s , we f i n d, a n a r g u m en t ag a i n s t t h e p r i n c i p l e l a i d d o w n b y t he I . T. A . T. w h i l e r e s t or i ng t h e i ss u e t o t h e CI T( A p p e al s ) , w h i c h c a n n ot b e c h a l l en g e d b e f o r e u s . Th e a p p r o p r i a t e r e m e d y w i t h th e a s s e s s e e l a y b e f o r e t h e 15 H i g h C o u r t. I n v i e w o f t h e s ame , w e d i s m i ss g ro u n d N o . 2 r a i s e d b y t h e as se s s e e .
15. I n e ff e c t , t h e ass e s s e e ' s a p pe a l i s p a r t l y a l l o we d w h i l e t h e R e v e nu e ' s app e a l i s di s m i ss e d.
O r d e r p r on o u n c ed i n t h e O p e n Cou r t .
Sd/- Sd/-
(SANJAY GARG) (ANNAPURNA GUPTA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated : 15 t h June, 2018
*Rati*
Copy to:
1. The Appellant
2. The Respondent
3. The CIT(A)
4. The CIT
5. The DR
Assistant Registrar,
ITAT, Chandigarh